Opinion
Civ. No. 98-0494 c/w 98-1109, SECTION "K"(5).
February 17, 2000.
Before the court is the motion of Walter Oil Gas Corporation ("Walter") for amended factual findings or, in the alternative, for new trial pursuant to Federal Rules of Civil Procedure 59(a) and 52(b). Following a bench trial on the merits, judgment was entered in favor of Walter and against plaintiffs (hereinafter collectively referred to as "Tidewater") on December 21, 1999. For the reasons explained below, the court finds that Walter's motion lacks merit and should be denied.
On behalf of itself and working interest holders Walter Production, Inc. (Expl), Walter Production, Inc. (Dev), Howell Group, Ltd., British-Borneo Exploration, Inc., Walter Oil Minerals Corp., J.C. Walter, Jr., J.C. Walter III, Carole Walter Looke, Jack J. Horton, Jr., James, H. Dick, and Carl W. Kuhnen, Jr., and Vastar Resources, Inc.
Background
This action arises out of the allision of a barge with an offshore oil platform. Tidewater's liability for the allision was determined at trial in April, 1999, and the issue of damages was tried in September, 1999. Following the September bench trial, this court found that Walter was entitled to recover $7,333,529 in damages for its lack of production during the shut-in period.
In its Order and Reasons of December 21, 1999, the court explained the method by which damages for deferred production would be calculated. This court employed the method accepted by the Fifth Circuit in Nerco Oil Gas, Inc. v. Otto Candies, Inc., 74 F.3d 667 (5th Cir. 1996). In Nerco, the district court had awarded damages based on the present value of the net revenue from the future stream of production minus the present value of the net revenue from the future stream of production, taking into account the delay in production. See Lleco Holdings, Inc. v. Otto Candies, Inc., 867 F. Supp. 444 (E.D.La. 1994).
In this case, the court arrived at the figure of $7,333,529 by applying a discount factor of fifteen percent and a risk-adjustment factor often percent to the calculations supplied by Tidewater's and Walter's experts. The $7,333,529 represents damages for delayed production only, as the evidence presented at trial reflects that no production was lost during the 165-day shut-in period.
In its Motion to Amend Factual Findings or for New Trial, Walter contends that the court erred in reaching the following conclusions:
1) The appropriate discount rate is fifteen percent.
2) The behind-pipe reserves should be risk adjusted by a factor often percent.
3) There was no lost production in this case.
The court will address each of these in turn.
Legal Analysis
1. Standard for Amended Findings of Fact or New Trial
The court considers the applicable standards for new trial in a non-jury case pursuant to Rule 59(a) and for amended findings pursuant to Rule 52(b). A motion for new trial in a nonjury case or a petition for rehearing should be based upon manifest error of law or mistake of fact, a judgment should not be set aside except for substantial reasons. See 11 Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice and Procedure, § 2804 (1995). Rule 52(a) does not require that the district court set out findings on all factual questions that arise in a case. Valley v. Rapides Parish School Bd., 118 F.3d 1047, 1053-54 (5th Cir. 1997). Rather, the district court is expected to provide a clear understanding of the analytical process by which ultimate findings were reached. Id.; see 9A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure, § 2582 (1995) ("Wright Miller"). Rule 52(b) provides the district the opportunity to correct any manifest errors of law or fact; a party who has failed to prove his strongest case is not entitled to a second opportunity by moving to amend a particular finding of fact or conclusion of law. Wright Miller § 2582.
2. The Fifteen Percent Discount Rate
Walter contends that the court erred in concluding that fifteen percent was an appropriate discount rate to apply in this case. Walter directs the court to reconsider the trial testimony of the corporation's treasurer, Emily Hermmann ("Hermmann"). Hermmann testified that the rate of return for the particular well was seventy percent, which she felt was the proper discount rate in this case. Further, at trial, Hermmann stated that the rate of return on all Walter projects was about 35%. Walter urges the court to follow the Lleco Holdings, 867 F. Supp. 444, wherein the district court applied a twenty-five percent discount rate because the wells in that case were "low risk." Id. at 448.
This case is distinguishable from Lleco Holdings because in that case, little or no behind-pipe reserves were used to calculate reserve value. In this case, however, ninety percent of the reserves considered by Walter's expert were behind-pipe reserves, which are inherently less predictable than producing reserves.
Furthermore, as stated in its Order and Reasons, the court gives credence to Walter's expert, B.P. Huddleston ("Huddleston"), who testified that he felt more comfortable using a ten or fifteen percent discount rate, which is consistent with the industry's target rate of return. Walter has presented no new evidence or jurisprudential support for its request that the court apply a higher discount rate. Consequently, the court will not amend its conclusions regarding the discount factor.
3. The Ten Percent Risk Adjustment Factor
Walter also argues that the court erred in risk adjusting the behind-pipe reserves in this case. In support of its argument, Walter reminds the court that only proved developed non-producing reserves were used in Huddleston's calculation of the reserve value. Because proved, developed non-producing is the most certain classification of reserves not currently in production, Walter argues that the court should not have risk adjusted the reserves at all.
In its Order and Reasons, the court explained that it applied the ten-percent risk adjustment factor for several reasons. First, while production is more likely with non-producing, developed reserves, there is still no guarantee that the reserves will ever be produced. Second, the court was mindful that ninety percent of the reserves considered by Huddleston were behind-pipe. Lastly, when Huddleston calculated the income stream thirteen years into the future, he assumed continuous production and made no adjustments for possible delays associated with recompletions, hurricanes, or other chance occurrences. For these reasons, the court applied an ten-percent risk adjustment factor, and Walter has not persuaded the court that its conclusion was erroneous.
4. No Lost Production
Walter asks the court to amend its findings and award damages for Walter's inability to produce 482 MMCF of gas and 142 MB of oil and condensates because of economic conditions over the next thirteen years. In support of its argument, Walter points to the testimony of Tidewater's expert, Calvin Barnhill ("Barnhill"). Neither of Walter's experts made a similar finding. The court finds that an actual award for oil and gas left in the ground after thirteen years of production is far too speculative. Any number of chance occurrences may prevent Walter from exhausting the production of the project. Furthermore, the court has found no cases in which such damages were awarded. Thus, the court will not amend its judgment to include damages for Walter's inability to recover 482 MMCF of gas and 142 MB of oil and condensates.
Conclusion
The court finds no substantial grounds upon which it should amend any of its factual findings or legal conclusions. The court stands firm in its assessment of the evidence adduced at trial and remains overwhelmingly convinced that its factual findings and legal conclusions are accurate and correct. Walter's motion does not raise any new factual or legal issues which the court did not consider at trial. Accordingly,
IT IS ORDERED that Walter's Motion for New Trial or Amended Findings is hereby DENIED.